Which do you think would be the best marketing strategy?

Offer both as options. Let people choose the version they want.

But set up the software on a yearly license, so that you can support the cost of upgrades. Or simply charge for all major upgrades.

Its a tricky one. Me personally, I would 'big up' the web based service with whatever benefit it has over the one time cost software, (regular updates, support etc).

I would do this as an offer just before the buyer pays for the one cost software, let them know that there is another option with bigger benefits.

I'm worried that if I start charging per year for the software that the sales will drop and go to competitors who don't charge yearly.

What I've done as a compromise is that the software asks users if they want to make a donation to help support the software after each year after their purchase date, I get $100-300 a month in donations this way and think this is better than charging yearly for the software.

Additionally, the software is able to work with the web based version, so you have the option to use that feature and pay for the web based service from within the PC software, users are also offered a free trial of the web based version when they first run the software.

I also prefer not to charge for upgrades as they are required for the software to stay up to date with eBay so if someone buys it and eBay changes the next day, it wouldn't be fair to ask them to pay again.

Even though my website has an atrocious design I've redesigned it temporarily so the web based version is on the home page of my website, but I will have a professional redo my website soon.

I wanted to add, another benefit of selling the web based version as the main product for sale in my eBay auctions and the software as being a "free bonus" would be that I would no longer have to put the software on CD to conform to eBay rules, the prepaid card could be the main product sold and the software would be downloadable.

This would mean I'd no longer have to burn & label CDs and would reduce shipping cost from $2.50 to $1, considering I ship for free this would help.

However one benefit of selling the software as the main product is that it is for a lifetime license which is a big advantage for buyers.

I'd go for list building and affiliate marketing integrated! They are killer methods after all.

I think both ways will work. As long as there is FREE you can lure a lot of people to it. How about build your list at the same time you offer this promotion for your product.